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Royalty payments

May 16, 2014

A day after the Fort Worth ISD sued Chesapeake Energy over its royalty payment practices, the Star-Telegram filed its own suit against the natural gas producer, alleging two Chesapeake units improperly deducted costs from royalties on one lease and has failed to pay royalties on another. The suit seeks between $200,000 and $1 million in damages. A number of royalty owners in the Barnett Shale, including the cities of Fort Worth and Arlington, and in other states have sued Oklahoma City-based Chesapeake over similar issues. In one of the largest such cases, the company last year paid $7.5 million to settle a class-action lawsuit in Pennsylvania alleging underpayments of royalties.

According to the Star-Telegram's suit, filed in state court in Fort Worth, the Star-Telegram signed two leases with Chesapeake, one in Tarrant County in 2007 and one in Johnson County in 2010. On the Tarrant County lease, the suit says Chesapeake "impermissibly deducted certain costs and expenses from the royalties due Star-Telegram. Further, it appears as though Chesapeake has failed to properly pay Star-Telegram on the full volumes of gas that are applicable to Star-Telegram's royalty share." In the Johnson County lease, the suit alleges Chesapeake began production from wells on a unit that includes the Star-Telegram's lease as early as March 2011, but the Star-Telegram has never received any royalties on it.

March 13, 2014

The Wall Street Journal on Wednesday had a report on challenges in Pennsylvania to Chesapeake Energy's calculation of royalty payments, focusing on deductions the company has taken for costs that exceed deductions taken by other producers. It's the latest in a string of similar reports in the Star-Telegram that you can read here, here, and here. You'll run into the Journal's pay wall unless you're a subscriber, but you can read an interview by StateImpact Pennsylvania with Lt. Gov. Jim Cawley here to get the gist.

March 07, 2014

Chesapeake Energy improperly deducted expenses from royalty payments and violated other terms of its drilling lease with a prominent Fort Worth family, a state appeals court ruled this week in the latest development of several such suits working their way through the legal system. The Fourth Court of Appeals in San Antonio upheld a Tarrant County court decision that found Chesapeake breached the terms of its lease with Martha Rowan Hyder, who represented the estate of her late husband, Elton M. Hyder Jr., and their children. The lower court had awarded the Hyders about $700,000 in unpaid royalties, plus interest and attorney’s fees that pushed total damages to nearly $1 million.

The Hyders filed their suit in 2010, one of several in recent years accusing Chesapeake of not adequately paying royalties from its natural gas production in the Barnett Shale. State Judge Melody Wilkinson in 2012 found that Chesapeake breached the terms of Hyder’s lease and awarded damages, which the appeals court affirmed Wednesday. David Drez of the Fort Worth office of the Wick Phillips law firm, who represented the Hyders, said both court rulings recognized the validity of the negotiated terms of the family’s lease. The Hyders in 2004 signed a mineral rights lease on about 1,000 acres in Tarrant and Johnson counties with Four Sevens Oil Co., which assigned the lease to Chesapeake in 2006, according to court filings.

Chesapeake, through a spokesman at its Oklahoma City headquarters, declined to comment on the case.

September 03, 2013

Chesapeake Energy, which has faced numerous suits in several states over its payment of royalties on natural gas production, agreed to a $7.5 million settlement of a class action case in Pennsylvania. Here's a link to a report.

August 19, 2013

Several Fort Worth parties, including investor and lawyer Elton Hyder, have become the latest to sue Chesapeake Energy over what they say is the improper payment of natural gas royalties. In a lawsuit filed Friday in Fort Worth district court, the plaintiffs say affiliates Chesapeake Operating and Chesapeake Exploration, along with Total E&P USA, took cost deductions in violation of their lease terms and also failed to pay royalties on natural gas liquids produced from several leases. Total, a French energy giant, acquired 25 percent of Chesapeake's holdings in the Barnett Shale in 2010.

A Chesapeake spokesman said Monday the company would not comment on the case.

"Both Chesapeake and Total employ a royalty-accounting system and gas-marketing arrangement that negatively impacts royalties," the suit alleges. Specifically, the suit claims Chesapeake sells to affiliates to produce a lower price on which it pays royalties, and then "used device and sham transactions" with its affiliates to impose post-production costs, such as pipeline gathering and compression expenses.

Further, the suit claims Chesapeake didn't pay royalties at all on natural gas liquids produced from some leases. Natural gas liquids, which are separated from produced natural gas at treating facilities, command a higher price per Btu than dry natural gas. They can significantly boost the value of the so-called "wet" gas that contains the liquids. The suit doesn't list a dollar amount for damages, and James Holmes, the Dallas attorney who filed the suit, could not be reached for further comment.

Most of the allegations mirror those of earlier cases, including a federal lawsuit filed in March by large Tarrant County landowners that included Ed Bass and Trinity Valley School. That cases is still active, according to the federal courts online database. Similar claims have also been lodged in courts in Louisiana, Pennsylvania, Oklahoma, Arkansas, Kansas and Ohio, according to news reports.

April 25, 2013

A class-action lawsuit in Oklahoma that seeks $160 million in alleged royalty underpayments from Range Resources led the Fort Worth-based oil and gas producer to book $35 million in potential expenses during the first quarter, according to a Securities and Exchange Commission disclosure today. "While we believe we have strong defenses to the claims made in this lawsuit," Range said in its filing, it concluded that amount was appropriate "given our evaluation of the law in Oklahoma, the outcomes in similar litigation and our assessment of the current status of the litigation." Range also said it has appealed a Feb. 19 court ruling certifying a class.

Deductions for post-production expenses "by third parties who transport and process natural gas production" form the basis of the suit, the company said in the filing. Range said that while it believes that "current case law in Oklahoma ... allows operators to deduct value-enhancing costs for treating, compression and other post-production expenses incurred to increase the value of a marketable product," the extent of the deductions could be something a judge or jury must determine. Range generally sells its Oklahoma natural gas production to third parties "which, in many cases, do transport and process the gas," it said. Range Resources-Midcontinent, the subsidiary involved, Range said, "has substantially complied with its royalty payment obligations under its leases and we therefore intend to vigorously defend this litigation."

March 14, 2013

Nearly two dozen Tarrant County landowners, including Fort Worth billionaire Ed Bass, have sued Chesapeake Energy in federal court in Dallas, claiming the producer shorted them on royalty payments. According to the suit filed Wednesday, Chesapeake Operating and Chesapeake Exploration, which hold leases on nearly 4,000 acres owned by the plaintiffs, passed on production costs in breach of their leases and imposed other costs improperly. The suit also claims the company used two affiliates to set below-market sales prices for natural gas produced from the leases. Julie Wilson, Chesapeake's vice president for urban development in the Barnett Shale, declined to comment.

May 04, 2010

In October 2008, as natural gas prices continued their freefall that began the previous July, natural gas producers and their leasing agents abruptly ceased signing mineral rights leases in Tarrant County. Many homeowners whose neighborhood groups had negotiated rich signing bonuses and favorable lease terms were nevertheless shut out of the bonanza. Now the energy firms' actions are the subject of about 20
Tarrant County lawsuits filed by three Dallas law firms known as the
North Texas Lease Litigation Group on behalf of individual property
owners in southwest Fort Worth and southeast Arlington. The suits
contend that property owners were illegally denied the opportunity to
sign lucrative leases negotiated by the neighborhood coalitions. Kip
Petroff, an attorney for the litigation group, said it expects to
eventually file hundreds of cases on behalf of such residents.

February 08, 2010

Residents of neighborhoods in northeast Tarrant County are moving toward executing a final Barnett Shale natural gas leasing agreement with Chesapeake Energy after having overwhelmingly approved the proposed terms in a Saturday election. Nearly 95 percent of the 1,591 households voting cast ballots in favor of the leasing deal, said Doug Inscho of Keller, chairman of the research team for the Northeast Tarrant Gas Leasing Organization (NETGLO). It comprises about 40 neighborhoods in Keller, North Richland Hills and a small portion of Colleyville. The lease proposal calls for a bonus of $5,250 per acre for a three-year primary term, with a $2,500 bonus for an optional second two-year term. The royalty rate would be 25 percent.

Inscho said he believes the proposal received lopsided approval because “people looked at the terms that were offered and it certainly is better than the current market rate...what companies are offering just going door to door.” Some recent offers have been for bonuses of only about $1,000 to $2,000 an acre and a royalty rate of only 20 percent. Inscho said he believes that northeast Tarrant residents also backed the lease proposal because they “were interested in moving on...they’ve been dealing with this, waiting and waiting and waiting, for almost a couple of years.” The next step, Inscho said, will be to meet with Chesapeake officials and see what follow-up actions are needed to move toward getting leases with individual property owners executed.

September 15, 2009

Chesapeake Energy, which is fighting a lawsuit filed by Burleson property owners who claim the company illegally reneged on a lease agreement that would have benefited 408 households, wants to have the case heard in a Dallas federal court. But the property owners filed the lawsuit July 20 in the 18th State District Court in Cleburne and want venue to be there. Burleson is in far northern Johnson County.

Chesapeake contends the proposed class action lawsuit should be in federal court in part because the Class Action Fairness Act authorizes such jurisdiction for class actions with more than $5 million at stake. Chesapeake, represented by the prominent Fort Worth law firm of Kelly, Hart & Hallman, notes that the lawsuit seeks nearly nearly $6.7 million just for lease bonuses.

Another well-known Fort Worth law firm, Whitaker, Chalk, Swindle & Sawyer, represents two named plaintiffs, Leslee Dawn Ahrend and Buster Ray Williams, and wants the lawsuit to be declared a class action that would include the hundreds of Burleson properties that would have benefited from a lease agreement reached in 2008 between representatives of Chesapeake and an alliance of homeowners .

Under the agreement, property owners would have received a lucrative lease bonus of $27,200 per acre and a 25.25 percent royalty, the lawsuit states. It contends that Chesapeake was guilty of breach of contract in aborting the agreement by refusing to sign lease agreements with individual property owners based on the terms of the agreement. The plaintiffs cite a letter, dated Oct. 16, 2008, that a senior landman representing Chesapeake sent to representatives of Burleson homeowners. The landman said that, as a result of the deep economic recession and plunging natural gas prices, Chesapeake was "withdrawing previous offers to lease your minerals." The ,lawsuit contends that Chesapeake this year has offered a lease bonus of only $1,000 an acre and a 25 percent royalty.